Smurfit Kappa shares jump on robust results and dividend

Shares in Smurfit Kappa soared on Wednesday as the cardboard box maker reported better-than-expected earnings for the three months to September and showed its confidence in future prospects by announcing plans for a second interim dividend.

The company said in a trading update that its earnings before interest, tax, depreciation and amortisation (ebitda) came to €1.13 billion for the first nine months of the year.

This implies that earnings declined less than 5 per cent in the third quarter to €390 million, beating analysts’ expectations and marking an improvement for the first half of the year, when earnings slumped 13 per cent as the Covid-19 crisis dented demand for packaging. The company’s ebitda margin for the third quarter came to a record 19 per cent.

Goodbody Stockbrokers analyst David O’Brien said that Smurfit Kappa’s move to pay a second interim dividend of 27.9 cent per share, or €66.5 million in total, is a “very strong show of confidence” by the board in the business.

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It follows a €193 million surprise payment announced in July that replaced a final 2019 dividend deferred in April at the height of the coronavirus shock.

Smurfit Kappa shares rose 3.4 per cent to €35.60 in Wednesday trading in Dublin.

Uncertainty

While chief executive Tony Smurfit noted uncertainty over the path and effects of Covid-19 in the short term, he said the group is "increasingly excited by our future prospects and the structural growth drivers of our business, including ecommerce and sustainable packaging".

On a call with analysts, Mr Smurfit said a number of large customers were looking to convert from plastic to paper-based packaging and that the “big trend” of a global shift to sustainable packaging could turn into “very large” financial results for the company in the future.

“We have more opportunities than we know what to do with,” Mr Smurfit said.

Between 75 per cent and 80 per cent of the group’s business is in the supply of packaging for food and food-related related products.

Still, the group forecast that its full-year ebitda would decline as much as 11.5 per cent to €1.46 billion-€1.48 billion. Davy analyst Barry Dixon said the full-year outlook “seems typically prudent” of the company.

Smurfit Kappa said it would repay any government supports it received internationally related to the Covid-19 pandemic. It said the overall figure was “not material”.

“That it can deliver all-time high margins in the teeth of a pandemic is impressive,” Mr Dixon said. “The current valuation of the stock does not reflect this resilience or the improving dynamics in the industry.”